MedAssets Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.26.14 | About: MedAssets, Inc. (MDAS)

MedAssets (NASDAQ:MDAS)

Q4 2013 Earnings Call

February 26, 2014 5:00 pm ET

Executives

Robert P. Borchert - Senior Vice President of Investor & Corporate Communications

John A. Bardis - Founder, Chairman, Chief Executive Officer and President

Michael Patrick Nolte - Chief Operating Officer and Executive Vice President

Charles O. Garner - Chief Financial Officer and Executive Vice President

Rand A. Ballard - Chief Customer Officer, Senior Executive Vice President and Director

Analysts

Michael Cherny - ISI Group Inc., Research Division

Charles Rhyee - Cowen and Company, LLC, Research Division

Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division

George Hill - Deutsche Bank AG, Research Division

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

Steven P. Halper - FBR Capital Markets & Co., Research Division

Donald Hooker - KeyBanc Capital Markets Inc., Research Division

Jeffrey Garro - William Blair & Company L.L.C., Research Division

Gavin Weiss - JP Morgan Chase & Co, Research Division

David Larsen - Leerink Swann LLC, Research Division

Sean Dodge - Jefferies LLC, Research Division

Bret D. Jones - Oppenheimer & Co. Inc., Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Operator

Welcome to the MedAssets Earnings Call. My name is Adrienne, and I'll be the operator for the call. [Operator Instructions] Please note, this call is being recorded. I'll now turn the call over to your host, Robert Borchert. Robert Borchert, you may begin.

Robert P. Borchert

Thank you, Adrienne, and good afternoon, everyone. With me today are John Bardis, our Chairman, President and CEO; Mike Nolte, our Chief Operating Officer; Chuck Garner, our Chief Financial Officer; and Rand Ballard, our Chief Customer Officer.

A slide presentation that accompanies our formal comments and webcast is posted in the Investor Relations section of medassets.com under Events & Presentations. We will be making forward-looking statements on today's conference call regarding our expected financial and operating performance, which may be affected by risk factors that are described in detail in our periodic filings with the Securities and Exchange Commission. There are also risk factors not presently known to us or which we consider to be immaterial that may adversely impact our performance. Therefore, actual results may differ materially from our forward-looking statements discussed today or in the future. MedAssets assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Today, we will discuss certain non-GAAP financial measures. For more information, please refer to the reconciliation schedules and footnotes in today's earnings press release and presentation materials, which are posted in the Investor Relations section of medassets.com.

[Operator Instructions] Thank you.

So now I'd like to turn the call over to John Bardis.

John A. Bardis

Thank you, Robert, and good afternoon, everyone. We're excited to report that we closed 2013 on a high note. Bookings were strong, heading into the new year, and we are seeing the impact of industry changes and the strength of our performance improvement solutions materializing in our sales pipeline.

We reported total net revenue of $170.5 million for the fourth quarter, which increased 4.1% from a year ago. Excluding performance-related fees in both periods, our Q4 total net revenue increased 4.5%. Adjusted EBITDA in the period was $52.8 million, and adjusted earnings of $0.30 per share increased 11.1%.

For the full year, we delivered total net revenue of $680.4 million, which was up 6.3% from 2012 and grew 6.9% if you exclude performance-related fees in both periods. Adjusted EBITDA was $220.8 million, up 6.5% year-over-year, while adjusted earnings of $1.32 per share increased 16.8% over 2012. Cash flow continued to be strong, with full year free cash flow coming in at $94.1 million. This supported additional debt prepayments of $25 million in the fourth quarter and $105 million year-to-date.

Our financial strength and operating stability supports the execution of our strategy. We are in the midst of a dramatic change in healthcare. And during 2013, MedAssets further strengthened its position as a leading performance improvement partner to help healthcare organizations address their specific challenges around price, process, payment and patient outcomes.

We continue to distinguish ourselves and our healthcare breadth of data, analytics and service expertise. We assess and advise on action plans to improve a client's healthcare operations. We implement best practice tools and services to drive towards the best outcome. And we continuously prove our ability to sustain financial and operational improvements for long-term client success, enhancing providers' organizational alignment by driving change with our consulting expertise.

Our data-driven insights from analytics tools and proven execution are very large differentiators. And a number of client renewals and service expansions, as well as new wins over the past year, are proof of this success. We announced a significant renewal and expanded agreement with Kaiser Permanente in early January. In mid-December, we also signed a multi-year contract extension with Kindred Healthcare, which provides healthcare services to more than 2,000 locations, including over 100 transitional care and rehabilitation hospitals. MedAssets will continue to serve as their group purchasing organization, providing a breadth of our strategic sourcing and spend analytics solutions.

Another exciting client relationship is with Allina Health, a 12-hospital system that expanded its use of our contract and episode of care management solutions in the outpatient settings for tighter physician hospital integration. This will help Allina prepare for accountable care delivery models by better aligning its hospital and physician reimbursement strategies across the care continuum.

Finally, I wanted to mention our comprehensive cost and revenue management engagement with California-based Marin General Hospital. This includes our strategic sourcing, supply chain solutions, clinical resource management and lean performance improvement consulting, as well as MedAssets revenue cycle consulting, to enhance Marin General's cash flow for sustainable operation and clinical improvement.

These recent client wins are excellent examples of how we help healthcare providers transform their operations through tailored, holistic approaches. This is critical because financial pressure on providers is actually accelerating. Payment constraints are increasing, healthcare reform will continue to throw curveballs for years to come and utilization trends are mixed.

Recent hospital survey data showed that inpatient discharges are down 3% to 4% in the fourth quarter from a year ago, but observation visits in that same period, jumped almost 8%. Inpatient surgeries were flat in Q4, but hospital-based outpatient surgeries increased about 4.5% from a year ago. As we mentioned last quarter, this is likely a combination of pent-up demand from the weak economic recovery and changed individual behavior as part of consumer-directed health plans. What this tells us is that the data points are not clear enough to predict the future at this point. Like many in the industry, we expect utilization of healthcare services to increase as newly insured are enrolled and begin accessing the system. This is what occurred in Massachusetts following the implementation of RomneyCare as older, sicker individuals signed up for insurance coverage first because they needed a financial backstop for their much needed care. It has also created significant financial challenges for providers. However, the timing and relative 2014 impact is uncertain, both for healthcare organizations and MedAssets.

As our MedAssets Healthcare Executive Forum was held 3 weeks ago, more than 75% of the hospital C-suite executives in attendance cited cost reduction and operational efficiency strategies as top priorities for their organizations due to the uncertainty and financial pressures coming from healthcare reform-related programs. While the lack of market clarity may create some short-term visibility challenges for our business, we believe this environment is a long-term tailwind for MedAssets. Industry leaders have acknowledged that the best practice performance improvement strategies are critical for healthcare organizations to enhance productivity and efficiency and lower total cost in order to maintain margins.

Many healthcare providers have already made the easy adjustments within their organizations, but they each have distinct needs and must work to standardize their financial, operating and clinical capabilities. Our recent discussions with provider clients and prospects are focused on how to manage integrated change initiatives, including the culture transformation needed to improve efficiency, reduce clinical variation and improve patient satisfaction and outcomes. MedAssets has a proven ability to leverage data and analytics to help providers bridge the gap to value-based -- in a value-based environment. We understand what best practice is, and we have the analytics, visibility, expertise and processes to reduce the total cost of care while, at the same time, enhancing operational efficiency to align clinical delivery and improve revenue performance.

Our focus in 2014 is to continue to build market awareness of the breadth of our capabilities and improve our position for long-term growth, with an even greater consultative selling approach to the hospital C-suites. We believe our expanding relationships and success can deliver meaningful and measurable improvements to our clients and drive faster growth for our enterprise.

We will look to grow through a more robust process for organic and inorganic innovation. We will continue to target our innovation of helping to drive process change, performance improvement and real financial impact for our clients, all leading to profitable growth for MedAssets.

Before I turn it over to Mike, I'll make a couple of just very brief comments. We believe that best practice in this industry is available today, but it's not evenly distributed. And I'll give you an example. Kaiser Permanente today covers 9 million lives and spends about $50 million to do it, but since 1945, they've been in the business of actually managing health and wellness of their members. And in doing so, they have been able to build not only the data but, more importantly, the processes to manage patient care in a way that has the outcome in mind, long before the patient finishes the process of care through diagnosis. And what that means specifically, for example, in the supply chain arena is that products are chosen for the utility in the overall value of driving care in a specific disease state at diagnosis, with the end game in mind being well past patient discharge but, frankly, all the way through the duration of their life. This is true for advanced industries like automotive, where Toyota picks a part for a car, with the idea in mind of what that car can actually do and what it will look like, how it will perform and what its service cost will be 10 years from the point of sale.

If you took KP's costs today and deployed them across the United States, and this is not perfect science, we believe that it could reduce the cost per capita from somewhere around $8,900 per man, woman and child for healthcare in the country to date to their level, which is about $5,500. That, in fact, is well north of $1 trillion. These protocols exist, they're real and they've been driven by incentives that have value at the heart of their focus from the very beginning. So we believe that much of what we've learned and much of what we bring to the table today is not strictly about price, it's not strictly about revenue management, but it's really around process improvement in environments that are highly differentiated from each other based on the assets that they own and the differences in the way that the physician populations are structured, as well as the complex differentiation in their payer contracts. So this will be a process as we close the gap from the runaway cost environment of fee-for-service, paralleled with fee-for-value. So having said that, we believe this is a very exciting time.

And now I'd like to ask Mike Nolte to provide an operational update. Mike?

Michael Patrick Nolte

Thanks, John. Over the last couple of years, we worked to take a great book of business and build a more scalable infrastructure and delivery model. As we have done and will continue to do in 2014, we focus on 4 key areas: great teams, client success, profitable market growth and high-quality innovation.

In the past 12 to 18 months, we brought into MedAssets a number of key operational and technical leaders with the right insight and capabilities to help build the next tier of growth for the company. The power of that leadership in 2014 will pay even greater dividends as we strengthen the talent bench in the company.

We also made great strides in transitioning from a sales focus to a client service focus with more clear delivery expectations to support our client success in their own markets. We've invested in more consistent, more targeted commercial process that is paying dividends in pricing, customer satisfaction and new wins while building a deeper service culture as we work together with our clients on their toughest problems.

Chuck, John and I have also worked hard to build a greater level of financial and operational discipline to manage our business for profitable market growth. And today, we make better decisions in placing long-term bets from an investment perspective. While it required some short-term trade-offs, we believe the investments we made in people, service, infrastructure and product innovation are the right path to deliver on our commitment to grow consistently in the future.

We are keenly aware of the need to accelerate our top line growth and to support that growth with consistency, predictability and operating leverage. Our investments over the last 18 months such as a scalable, more consistent service platform, particularly in our Software-as-a-Service businesses, are leading to a resurgence of our pipeline in bookings performance. We are also transitioning our investments back to a better balance of innovation and product differentiation to capture market momentum. We certainly continue to focus on driving improvement in our GPO contract coverage and compliance. Our cost analytics tools and dedicated clinical resources assist clients in gaining high-value products and service conversions in our SCM segment.

Our supply chain technology backbone, the combination of the MedAssets National Procurement Center, linked to the Ariba e-commerce network, creates greater transparency and visibility into even greater cost savings opportunities and provides lower transaction fees for our clients. Particularly, as formerly closed networks like GHX open up, we see enormous opportunities to continue to digitize the supply chain.

In our embedded management strategic outsourcing businesses in both our Spend and Revenue Cycle segments, we have documented significant financial improvement for our clients. We continue to focus on refining our strategy, choosing where and how to partner and using our scale and expertise to minimize service and performance variability.

Another priority area of growth is our broad advisory solutions expertise. John referenced a few of our cost management and process improvement engagements, and today, we linked these efforts with our commercial execution and delivery model to drive client success with our consulting effort. This approach is raising brand awareness of the full range of MedAssets' capabilities and supporting our growth agenda.

As we look ahead, we will continue to work directly with our clients as they transition to value-based care. Whether it's described as population health, fee-for-value, accountable care, medical home or one of a host of other terms, the essential truth is that our clients are beginning to invest in models that assume greater risk. We have provided and will continue to provide services and technologies to support their transitions.

Every provider we talked to believed aggregate reimbursement will decline and the foundation of what we do, reducing cost and ensuring reimbursement, is critical. Whatever the mix of incentives, MedAssets has a unique set of capabilities to provide a pathway with analytics and consulting expertise to help providers transition to fee-for-value without cutting off critical revenue streams and to differentiate their own business models. Our episode of care services and technologies help providers understand risk at a physician or patient level using our prospective and retrospective analysis and workflow-based tools to evaluate and model bundled payment contracts before they are signed. This is integrated with our contract management tools to help identify cost drivers and promote patient compliance and manage risk pools over time, identifying areas such as potentially avoidable complications that impact providers' profitability. We also offer a variety of advisory and service-based capabilities that improve the efficiency of care, deliver better clinical quality and assist with patient engagement -- with a patient's engagement in their own health.

Turning to our business segment update. Our Spend and Clinical Resource Management segment delivered $424.5 million in net revenue, growing 7.8% in 2013, with our net administrative fees increasing 8.5% year-over-year, driven by solid same-store growth. Approximately 1 percentage point of this growth came from onetime fees. Other services fees were up 6.6% and are comprised of our advisory, consulting and outsourced supply chain services, as well as our spend and clinical analytics tools.

For 2014, we expect our GPO-related net administrative fees to grow approximately 2.5% to 4.5% as we anticipate purchasing volume from new clients, and our contract compliance and coverage efforts will drive growth in gross administrative fees. We also estimate that industry trends for hospital census, medical acuity and commodity pricing will contribute additional growth. Our gross administrative fees will grow at a faster rate than net admin fees as we forecast increases in our revenue share obligation due to renewal pricing, shift of fixed fee to share back agreements and the impact of performance-related fees on the percentage of share back. We have, as we have had historically, strategies in place to actively manage the share back trend. We believe our net revenue growth from GPO will continue to be consistent and positive, given our competitive market position and our ability to improve contract compliance and portfolio coverage of purchased services to address a larger portion of provider cost and our ongoing ability to gain share. Importantly, we expect to see revenue from SCM other service fees grow 4.5% to 6.5% in 2014, led by high single-digit to low double-digit growth from our advisory and consulting services.

Our full year bookings in the SCM segment increased about 5% from 2012. In the fourth quarter, bookings rose 12% year-over-year. Our SCM sales pipeline continues to be robust and driven by traction with our total cost and performance management offerings. Contracted revenue increased 5.8% year-over-year, driven by new wins and renewals. However, it was down 1.3% sequentially from the third quarter due to the timing of new wins, the impact of contract renewals and the early achievement of certain performance-related fees in the fourth quarter. While weak patient census is likely impacting our current GPO net administrative fee growth trends, as John mentioned earlier, the expectation of increased healthcare utilization from the Affordable Care Act should be a long-term positive tailwind for our business.

Our Revenue Cycle Management segment grew 3.8% in 2013 and contributed $256 million in net revenue. Our cloud-based Revenue Cycle Technology tools grew 6.2% off a very strong 2012, and the revenue growth was driven by our claims, contract and chargemaster management tools, as well as related consulting capabilities. Our Revenue Cycle Services business showed a 1.4% revenue decline due to the impact of 2 client losses that we discussed in early 2013, as well as lower performance-related fees when compared with 2012.

For 2014, we expect low single-digit revenue growth in the Revenue Cycle Technology business. Our strong bookings growth in the second half of 2013 will flow into revenue recognition in the second half of 2014 as products are implemented in the first half of the year. Solid bookings and faster expected revenue recognition in Revenue Cycle Services gives us confidence that this Services business can grow in the mid to upper single digits in 2014. We are gaining more traction by tying our services expertise to our best-in-class product offerings such as charge capture audit and clinical documentation improvement and raising the visibility of our strategic outsourcing and managed care services expertise.

Our RCM full year bookings in the RCM segment increased about 20% from 2012. In the fourth quarter, bookings rose 48% year-over-year. The timing of the related revenue recognition is reflected in our initial expectations for RCM segment revenue growth for full year 2013.

2013 bookings were behind our initial expectations for the year, but our sales and client management team helped drive solid momentum in the second half, driven by our cloud-based claims and contract management, chargemaster and patient bill estimation tools, as well as Revenue Cycle Service offerings.

Our contracted revenue estimate for the RCM segment increased 1.4% year-over-year and was up 2.3% sequentially from Q3. A breakdown of RCM shows that contracted revenue in Revenue Cycle Technology was essentially flat from the third quarter of 2013 due to a combination of revenue recognition timing of bookings and the completion of some consulting projects in Q4. Revenue Cycle Services contracted revenue increased 7.6% sequentially, due primarily to new client wins and the timing of contract renewals.

We continue to expect healthcare organizations to be impacted by significant coding challenges as they prepare for the conversion and compliance requirements of ICD-10 by October. This will create increasing provider reimbursement complexity and cash flow issues, which we view as a clear market opportunity for our Revenue Cycle tools and service expertise. However, the question is, what will be the extent of providers' willingness to purchase our solutions during this transition? And how fast will demand accelerate? Because of the near-term market uncertainty, we will continue to restrain our optimism until we see it beginning to materially benefit our financial performance, but our technology bookings to date continue to be very strong.

MedAssets already has an extraordinary set of capabilities to help clients transition from a traditional fee-for-service environment to a value-based one. These are real capabilities that we offer today. Our advisory and consulting capabilities enhance operational efficiency and improve clinical alignment and standardization, technologies handle episode of care or risk-based reimbursement and we have market-leading solutions that reduce the total cost of care, which is first on the agenda for nearly every healthcare organization we serve. We intend to continue to elevate the conversation with healthcare organizations so that they can understand our capability to have a direct financial benefit as we address many of their critical operating levers and help sustain their long-term success.

While the healthcare environment is clearly in a period of change, we remain focused on implementing the strategies to accelerate top line growth while also prudently investing in core process improvement and innovation to drive scale and long-term success.

Now I'll pass the call to Chuck to provide details of our financial results and outlook.

Charles O. Garner

Thank you, Mike. As with past quarters, please refer to our financial and other non-GAAP reconciliation schedules in today's press release and on our website for additional details on comparative year-over-year performance.

On a consolidated basis, our fourth quarter total net revenue increased 4.1% to $170.5 million when compared to the fourth quarter of 2012. This included $4 million of performance-related fees compared to $4.5 million in the fourth quarter of 2012, of which approximately 90% were in their SCM segment. Excluding these fees from both periods, total net revenue grew 4.5% over the fourth quarter of 2012. We generated total adjusted EBITDA of $52.8 million or a margin of 30.9%, a 4.0% decrease over fourth quarter 2012. This 261-basis-point margin decline was driven by business investments, lower fees from higher-margin Revenue Cycle Services contracts and the anticipated year-over-year decrease in performance-related fees. We reported adjusted earnings of $0.30 per share, which was above our expectations for the quarter due to strong GPO net administrative fee performance, as well as lower-than-projected depreciation and taxes.

Turning to our Spend and Clinical Resource Management segment. Net revenue increased 7.4% versus the fourth quarter of 2012. Excluding performance-related fees from both periods, our SCM segment net revenue grew 8.4% over the fourth quarter of 2012. GPO-related net administrative fees increased 10.4% due to solid execution of contract compliance, as well as a favorable year-over-year comparison due to the negative impact of Superstorm Sandy in the fourth quarter of 2012, which affected timing of administrative fee reporting by vendors. Our SCM segment other services fees rose 1.4%, as growth in our advisory and consulting services was partially offset by lower revenue from decision support services. Our SCM segment adjusted EBITDA margin of 42.6% decreased 184 basis points from Q4 of 2012 due to business and personnel investments and lower year-over-year performance-related fees.

In our Revenue Cycle Management segment, net revenue decreased 1.0% over Q4 last year, as anticipated. Revenue Cycle Technology comprised approximately 73% of fourth quarter RCM segment revenue and grew 4.9% year-over-year. Revenue Cycle Services revenue decreased 14.2% from the fourth quarter of 2012 due primarily to the wind-down of 2 clients last year, which we discussed in early 2013. Fourth quarter adjusted EBITDA margin in our Revenue Cycle Management segment was 24.2%, a 351-basis-point decline from 2012 due to business investments and lower fees from higher-margin Revenue Cycle Services contracts.

The next 3 slides provide a detailed summary of our full year results, and we'll briefly highlight just a few points. On Slide 19 shows that we delivered 6.3% revenue growth, with adjusted EBITDA growth of 6.5% and adjusted earnings growth of 16.8% to $1.32 per share in 2013.

Turning to Slide 20, in our SCM segment, we produced solid revenue growth of 7.8%, with a good balance of growth across these areas of the business segment.

On Page 21 shows we grew revenue in our RCM segment 3.8%, with Revenue Cycle Technology increasing almost twice the rate at 6.2% in 2013. Our overall business and, specifically, our strategic sourcing and supply chain services operating units continued to generate substantial cash flow.

For 2013, free cash flow was $94.1 million, up 2.9% from 2012, notwithstanding higher cash taxes paid in 2013, as well as an increased level in investments in our technology infrastructure and product development, as Mike alluded to earlier. Our adjusted EBITDA conversion of free cash flow was 42.6% for the full year. Our December 31 balance sheet reflects $761.7 million in total bank and bond debt net of cash. During the fourth quarter, we prepaid an additional $25 million of our Term Loan B, along with our scheduled principal payment. Net debt outstanding was approximately 3.4x our trailing 12-month adjusted EBITDA.

As we move into 2014, we have updated our capital allocation framework. Given our high recurring revenue and free cash flow generation, we will continue to target a leverage ratio of 2.5 to 3.5x trailing adjusted EBITDA, expect to end the year at approximately 3.0x leverage. In addition, we are continuing to closely monitor the credit markets and evaluate opportunities to further reduce our interest costs.

Also, concurrent with today's financial report, we announced that our Board of Directors authorized a share purchase plan of up to $75 million over the next 12 months. We believe debt repayment and the repurchase of our common stock are attractive uses of funds, along with continued investment in our growth and innovation initiatives, as Mike and John alluded to earlier.

Mike discussed the contracted revenue estimates for each of our business segments, so I'll provide a consolidated summary. Our rolling 12-month total contracted revenue estimates at December 31, 2013 was $625.4 million, which is a 4.1% increase from 2012 and consistent with the midpoint of our guidance for revenue growth in 2014. Our contracted revenue coverage ratio is 88.5% of the midpoint of our 2014 revenue guidance. This too is consistent with both 2012 and 2013 actual results and is the basis for how we formulate our top line guidance for the year on both the segment and on a consolidated basis.

Turning now to our financial outlook. Today, we are introducing our 2014 guidance, as summarized on Slide 25 of our presentation. We expect SCM net revenue to be in the range of $438 million to $446 million, which will be an increase of 4% over 2013 at our guidance midpoint. Net revenue growth in our RCM segment is expected to grow 3.5% at the midpoint to a range of $261 million to $269 million. Our 2014 total net revenue is expected to be in the range of $700 million to $714 million or an increase of 3.9% over 2013 at the midpoint of our guidance. Excluding performance-related fees, we expect the midpoint of our total net revenue growth will be approximately 4.5%.

Our adjusted EBITDA guidance range is $232 million to $242 million, which implies a margin of 32.8% to 34.2%. This is expected to be a year-over-year improvement of 36 to 177 basis points. Our adjusted EBITDA guidance also includes the benefit of an approximately $2 million restructuring charge, where we will incur in the first quarter this year.

We expect adjusted earnings per share in the range of $1.33 to $1.43, an increase of 4.5% at the $1.38 midpoint. This adjusted EPS guidance includes approximately $0.10 of dilution from increased year-over-year depreciation expense, which is consistent with our commentary last quarter, as well as approximately $0.02 of accretion that we are assuming from share repurchases during the year.

Our other assumptions for 2014 full year guidance are listed on Slide 26. We expect to generate free cash flow between $90 million and $100 million this year, which assumes approximately $28 million to $36 million of cash taxes versus only $7 million of cash taxes in 2013 or nearly a $20 million to $30 million increase in cash taxes this year.

Our full year interest expense is expected to be approximately $44.4 million, which is a 5.6% decrease from 2013. In addition, we continue to invest in product innovation and our technology infrastructure to support and to scale for future growth. Over the last 3 years, our capital expenditures have grown from $49 million in 2011 to $58.8 million in 2013, as we continue to reinvest in our business. We expect capital expenditures to be in the range of $55 million to $65 million again in 2014, consistent with 2013 actual results. These assets are depreciated over 3 to 5 years and are the primary driver of the increase in depreciation expense to an estimated $53.1 million in 2014. We expect depreciation expense to begin to flatten out beyond 2014.

Performance-related fees were $4 million or 2.4% of fourth quarter total net revenue and $20.9 million for full year 2013 as we benefited from approximately $1.5 million of performance-related fees from early execution and earlier-than-expected revenue recognition in Q4. We anticipate these fees to be approximately 2.5% of total net revenue in 2014, and disproportionately weighted in the first and in the fourth quarters. It is important to note the variability of timing of these fees. For example, performance-related fees in the first quarter of 2013 were $11.2 million, which was more than double any of the subsequent quarters last year.

We expect our first quarter 2014 net revenue in our Spend and Clinical Resource Management segment to be down 0.7% to up 3.0% from net revenue of $109.5 million in the first quarter of 2013, which included $10.3 million of performance-related fees in last year's quarter and also benefited from the timing of GPO administrative fees, reporting delays, as I mentioned earlier, related to Superstorm Sandy.

In our Revenue Cycle Management segment, we expect first quarter revenue to be down 0.4% to 6.7% when compared to first quarter 2013 revenue of $63.3 million. On a sequential basis, we expect RCM segment revenue to be down from the fourth quarter as Q4 of 2013 benefited from a few short-term consulting engagements for a dynamic pricing and chargemaster management projects.

Consolidated net revenue is expected to be down 2.4% to up 1.1% from the $172.8 million reported in the first quarter of 2013. Performance-related fees were also expected to be approximately $4 million to $6 million versus $11.2 million in last year's first quarter. Excluding these fees from both periods, we expect consolidated net revenue to increase 1.3% to 5.1% from last year.

We expect first quarter total adjusted EBITDA margin to be in the 31.5% to 33.9% range. This will be down 180 to 420 basis points from the first quarter a year ago as we expect to recognize substantially fewer performance-related fees, as mentioned earlier.

We expect GAAP EPS to be in the range of $0.10 to $0.14 per share compared with earnings of $0.13 per share a year ago. Our adjusted EPS is expected to be down 17% to 27% from first quarter 2013 adjusted EPS of $0.41 per share. In the fourth -- in the first quarter, we initiated a plan that resulted in a small reduction in force. We will incur restructuring charge of approximately $2 million in Q1. You will see in our supporting financial schedules reconciling our adjusted EBITDA and adjusted EPS guidance for 2014.

For the second quarter of 2014, we expect total net revenue to be up 0.9% to 4.4% from the $170.7 million reported in Q2 of 2013 and consolidated adjusted EBITDA margin to be down $210 million to up 10 basis points from 2013 second quarter margin of 30.8%.

In summary, the significant industry challenges will require healthcare providers to improve operations, align clinical delivery and be aggressive in managing the discrete costs of care delivery while also continuing to improve their revenue capture. MedAssets expects to be an essential partner in this effort.

And with that, we would now like to open the call for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we have Michael Cherny from ISI Group on line with a question.

Michael Cherny - ISI Group Inc., Research Division

So, Chuck, we always appreciate when you give the couple quarters of forward-looking guidance. In doing some very quick math, though, it seems like at least from an EPS perspective, there's a big second half weighting versus the first half. And so as you think, and I'm particularly maybe wrapping it back to the comments you made about investments in the business, is there something related to the investments you made so far that are expected to normalize in the second half that leads that acceleration? Is it all based on the pull-through on the revenue? I'm just trying to kind of compare the first versus second half growth at least from an EPS perspective.

Charles O. Garner

Yes, good question. A couple of things relate probably to the comparisons to last year as we talked about from the Rev Cycle Services side a couple of accounts that were coming out. So they're in the base in the first half of '13 that obviously won't be in '14 going forward. Mike also highlighted the fact that with some stronger pipeline in bookings in the latter half of 2013, we expect the revenue recognition from those items to be more tail-weighted in 2014. And then on the expense side, as you correctly surmised, there are certainly investments we have made and will continue to make in 2013 that will go into 2014 that tend to be more a bit front-end-weighted than they are back-end-weighted for the year. And then just further, I would add and reiterate, we also believe the performance-related fees, which obviously have a revenue variability to them but also a disproportionate earnings impact, given that they tend to be a higher contribution margin, they tend to be skewed a bit in the first quarter of the year and then also as well in the fourth quarter. So that will have a little bit of a gap. It explains some of the difference between your second and third quarter versus a year ago.

Michael Cherny - ISI Group Inc., Research Division

Great. And then, John, one very quick question. You talked about positioning the business for a long-term basis. I think you talked about innovation both in organic and inorganic perspective. With the leverage coming down, it's been a few years since you've done a deal. If you think about the potential for inorganic investment, any areas that you're really potentially focused on?

John A. Bardis

Mike, we think there are some interesting data tools out there, as well as some very interesting services, that expand reach for us, expand channel. Obviously -- we are prudent in sort of looking at those and seeing what the 1 plus 1 is, if it's something more than 2 for growth, as well as access. So I would say channel expansion on the services side and new technologies on the data side that leverage our existing portfolio.

Operator

And we have Charles Rhyee from Cowen and Company on line with a question.

Charles Rhyee - Cowen and Company, LLC, Research Division

You guys talked a lot about the transition here to value-based care. And as you look at all these other companies providing services, talk about, let's call it, broadly population healthcare coordination, it seems like a lot of these other offerings are starting to merge together a lot of different -- either they bought stuff or they built stuff that are kind of all kind of connected together here. In your technology business, can you talk about how you're packaging your solutions? And when we think about the solutions that you're talking about, which are the modules that you are offering up to your clients right now to really tackle that issue as they make that transition?

John A. Bardis

Charles, it's a very good question. So let me point you in the direction of our episode of care product offering, our service line analytic product offering and our contract management product offering as key examples. And then what I'm going to do is ask Mike Nolte to comment because Mike has been leading the innovation charge, along with our product management teams. To our knowledge, we, today, have the only fully live episode of care bundled payment tool, which allows us to -- and allows health systems to look very clearly at existing physician resource consumption under a fee-for-service environment and translate that into a fee-for-value environment to see how those resources would stack up to a fee-for-value payment. In doing so, we expect to connect the dots between our service line analytics tool, which uses a real-time analytic for current cost associated by physician, whether that physician is employed by the integrated delivery network or a hospital or whether they're independent, and then deploying that data against our contract management tool in order to understand how contracts today pay against those expected utilization patterns. Those are 3 examples of tools that exist today within the company that are live, that are inside institutions. One other that I'll also flip to Mike here is an application that is now live in a very large integrated delivery network in the United States that would be well-known to you, whereby we're actually able to, in live data feed, understand right now how contracts are being paid by payers on a daily basis and to identify if there's aberrations in those contracts that need to be addressed right away and how those stack up against projected payment or where payment pro forma should have been. That is able -- we are now able to look into that on an iPad or an iPhone or an Android application. Executives want to know on a real-time basis how the amalgamation of the Revenue Cycle is actually functioning. This is something that we've been working on for a while. In fact, I think we -- would have been great to have this out 1 year, 1.5 years ago, but it was around the whole notion, Charles, of integration, interoperable and unified as it related to the broadest range of Revenue Cycle tools that we have today in a cloud application format. So this is a way for us to begin leveraging that. So, Mike, if you -- since you've been leading this charge, I thought maybe if you had any comments, it would be great.

Michael Patrick Nolte

Yes. Charles, let me just start by saying something that maybe doesn't get said that often when people are talking about technology. But I think it's easy to lose sight of the fact that the transition to value-based care is actually a lot of hard work, and there isn't a magical answer from a technology perspective. And we certainly -- and I'll talk a little bit about what we're doing around care episodes just to give you a sense of the technology pieces of it. But there are lots of solutions in the marketplace where, essentially, you do some analysis, figure out who's the highest risk in your patient population, decide if they're a diabetic and send them a text telling them they need to come in for a foot exam. But that's really not where the creation of an economic business model within the health system is primarily. A lot of it is simply how do you want to compete, where do you want to compete and what cost basis and revenue model do you need to have in place to be able to be successful. And so many of our solutions, while they don't carry the same maybe sex appeal as an interesting analytics or a sleek platform, they're essential in helping customers make that transition. On the technology side, there are some interesting things that we're doing, and John touched on this. It really integrates for us 3 applications that are currently in this space, but it's all around a patient episode. And so you pick a surgery, for example, the integration of the ability to look at existing contracts to model them in a value-based environment where you're taking on risk, to understand the cost to serve that episode based on our service line analytics platform but, really, cost analytics underneath the covers and then, more importantly, as you make the transition from a fee model to a more risk-based model, to see what's going on in the transition and to understand by patient or by physician where you're inside or outside of the risk model that you propose so that you know where you've got to go control costs or you know where you have to go potentially renegotiate or you know where you have to have somebody execute against a different care pattern.

Charles Rhyee - Cowen and Company, LLC, Research Division

That's helpful. Is this something that -- I mean, are you still selling these -- those module by module when you're pitching the C-suite? Or is there a way you package this as sort of, "Hey, if you want to think about value-based purchasing, you need a, b, c and d of what we have here?"

Michael Patrick Nolte

Yes, [indiscernible] -- I mean, part of the reason why we've gone through this rebranding exercise is to really bring the full capability of the business to bear. I think you've been around healthcare providers enough to know they're all at different places is, I think, the short summary. And so there's not, unfortunately, a one size fits all answer for all of them. But I think -- for example, our episode of care solution is built off of the same technology that contract managers built off of. It's not a completely separate application. It leverages existing capabilities and, in some ways, depending on a customer, the existing technology footprint that we already have. And so we're trying to be smart about not creating distinct siloed applications but really using the capabilities that we already have, both from a data and a workflow perspective, whether we've already deployed those to a customer or not.

Operator

And we have Eric Coldwell with Robert W. Baird on line with a question.

Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division

A couple of questions here. First off, I was going back to your recent press releases over the last few years, and it looks like you've added about 30,000 or 32,000 alternate sites as customers and maybe 400 hospitals over the last 3 years, which is pretty impressive growth. I know you're talking about this fourth quarter bookings growth of 48% in RCM and 12% in SCM. Should we translate these bookings numbers into winning net new clients? Or is it still heavily weighted to penetrating the existing accounts with additional solutions? I think that's the first part of the question.

John A. Bardis

So, Eric, it's a good question, and thanks for that data. I think we'll have to start using that. So we have spent a lot of time, and Mike did a great job, and it was really important that Mike led it -- of our rebranding exercise, because what it did as well is it caused us to build a roadmap to get the entire organization, including our sales force, focused on organic growth, which, for us, was focused on 2 primary areas: one, the integration of existing solutions into existing clients; and two, being able to build the capability in a broad sense throughout the organization to analyze and then fully diagnose and prescribe a broad range of solutions given what we learned. That enterprise performance management approach, which has now become the standard for how we communicate with clients, has really enabled us to play more offense on the organic new client growth list. So we continue to understand the value of our existing client base and build very strong roadmaps as to how we continue to assist them. Bear in mind, as you well know, that the pressured pricing environment and cost environment that they face doesn't allow us to be immune from the kind of -- that pressure ourselves on price, et cetera. So if you're not growing inside those institutions by building better and more expansive solutions, you're going to be shrinking. And at the same time, rebranding the company has been central to reeducating how we produce and communicate our value proposition.

Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division

That's great. Just a couple of quick follow-ups. In your prepared remarks, you said a couple of times that one of the EBITDA impacts in RCM was the lower fees from high-margin contract losses in RCM services. But if I remember correctly, at the time that you announced the departure of those 2 clients, you spent a lot of time emphasizing that, that was your lowest-margin business. So I'm hoping we could get a little more color on -- for these particularly high-margin contracts that were lost or tough comparisons against payouts that you had received a year ago. I'm just trying to get a sense on where the rubber meets the road between last year's comments that they were low-margin clients and tonight's comments that they were higher-margin clients.

Charles O. Garner

Yes, sure, Eric, let me take a run at that. So we're really talking about 2 different groups of clients here. The 2 clients that wound down in the early part of 2013 was lower-margin business, and, hence, when we talked about that, we didn't expect it would have a material impact on our results for the year. And as we look back in hindsight, it did not. What we talked about, really, more and later in the year was a little bit of decline around, and we didn't get specific on a number of accounts, but a couple of accounts where -- that actually were higher-margin accounts that came in a little bit lower than expectations. So that's why the difference there. It's 2 different groups of accounts we're talking about, both that happened to coincidentally be in the Revenue Cycle Services business. We just called out the higher-margin nature of that second set of accounts just because, in general, they're a little bit higher than the average margin of the segment, just to make the comparisons more clear.

Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division

Okay. That makes sense. Last one, did I hear you correctly in saying that depreciation would flatten out starting 2015 and beyond?

Charles O. Garner

Yes. Certainly, we expect it will flatten out because we -- the only reason it would not is if we continue to accelerate our investments. So assuming the projections we have right now, which has CapEx being about what it was in '14, we're projecting as it was in '13. Assuming that trend continues as planned, then, yes, we will have had a couple of years now of elevated CapEx that would result in a more normalized, more flattened depreciation expense as we go forward the next couple of years.

Operator

And we have George Hill from Deutsche Bank on line with a question.

George Hill - Deutsche Bank AG, Research Division

John, I just want to be sure I'm hearing you right. As I look at the guidance for the Spend and Clinical Management segment throughout the year, it definitely sounds like versus the last quarter, you're expecting the business environment to improve. I guess I wanted to ask, are you expecting kind of underlying utilization to improve? And I wanted to understand what you're seeing there.

John A. Bardis

I'm sorry. I want to be sure that you are asking that question of me. This is John.

George Hill - Deutsche Bank AG, Research Division

Yes, if you will. I thought it was you who was discussing it in the presentation. So, yes, I focused it to you, but it wants to be Mike or Chuck, I'll -- I'd say I have the question, I trust that you guys will give me the right person to answer it.

John A. Bardis

Yes, yes, yes, no problem. Let me turn it to Chuck because he's our forward guidance guy. So...

Charles O. Garner

Yes. I think consistent, George, with our prior comments in the third quarter, look, for 2014, for everybody, it's going to be probably more in a certain year than 2013. So if you refer to -- it's Page 10 in our slide deck that accompanied our prepared remarks, you'll see how we talked about strategic sourcing growing. We estimate between about 2.5% to 4.5% in '14, and that's from, I think, some positive trends, to a lot of the great work that Mike and Rand and the team in the Spend segment are doing to drive new client wins, increase contract coverage, credit compliance, that's definitely a positive. And then the industry census utilization, the acuity, the setting of care, all those sort of, call it, macro market factors, I think, could be a positive tailwind for us or could be a little bit of a drag. It just depends how some of the healthcare reform and the coverage materializes. So we kind of noted [ph] that as kind of a plus/minus impact. And then, of course, that's offset between any change or growth, as Mike talked about, in a revenue share obligation. And so you net all that together, that gives you the 2.5% to 4.5% is what we project. So I wouldn't say our expectations -- we don't know a lot more about how '14 will completely unfold since we're only about a month, 6 weeks or so into it. So we're being a little bit more, I think, cautious on what the utilization trend would be. And I think as we talked about last quarter, to the extent it is positive, just given the timing of when that positive volume utilization would occur, it will be a lag effect for us, so probably a couple of quarters just because of the timing of our administrative fee reporting and revenue recognition.

George Hill - Deutsche Bank AG, Research Division

Right. Great. Maybe just my interpretation. I thought [indiscernible] a little bit more bullish to me than -- versus the previous quarter. Maybe a quick -- then just 1 very quick follow-up. Is the announced repo factored into the guidance at all? Or how should we think about that?

Charles O. Garner

Yes. We factored in $0.02 per share impact from the -- up to $75 million share repurchase that was authorized by our board, so that's included in our earnings guidance.

John A. Bardis

George, we've also -- just on that note, we have taken a relatively conservative view of utilization. And the reason for this is that if you look historically at post-recession recoveries, healthcare has typically lagged 24 to sort of 36 months in terms of following that recovery. So we have seen post-recession lags in utilization in the past. What's sort of difficult to gauge on this one, George, is how much reform is influencing the post-recession recovery utilization trend lines and acute care. We just don't know. And -- but history on this is -- 50 years' worth of history is pretty robust in terms of that recovery. It just -- it's got lag.

George Hill - Deutsche Bank AG, Research Division

Yes. No, I appreciate that all [ph]. Maybe it's just my ears that want to hear of a faster-improving macro environment. Maybe it's just not the case.

John A. Bardis

Yes, it's very interesting. It'll be an interesting time. I mean -- and at the same time, I think, due to Mike and Chuck and Amy and Rand and Keith Thurgood, I think that from an execution and alignment perspective, that we're very well-positioned to respond to that. And one of those areas, for example, on the Spend business, is the expansion in purchase services. Another area is that -- which up to now have largely gone unaddressed by contracting in the group purchasing arena. So I think we feel that there still remains substantial runway to grow that business in areas that have not historically been in the center point.

Operator

And we have Jamie Stockton from Wells Fargo on line with a question.

Jamie Stockton - Wells Fargo Securities, LLC, Research Division

I guess maybe, Mike, the commentary about the stronger bookings growth for Revenue Cycle Technology in the fourth quarter seems to be a stark turnaround from the third quarter. What really changed? And does the comment that it's kind of been sustained thus far into the first quarter mean that it's relatively broad-based?

Michael Patrick Nolte

Yes, it's really, I think, 2 things fundamentally that changed. One is, I think, having a consistent service and infrastructure model. Really, the beginnings, we believe, of the payoff of some of the investments we've been making over the last 18 months to 24 months have allowed us to, as you can imagine, have more fruitful conversations as we're trying to sell into existing installed base customers or win new deals through referral, and that's a big change. The second is, and John touched on this a little bit, but the ability to lead with the brand and take a more executive level total capability approach as we sell around the entire suite of products and services within MedAssets has really led to what I jokingly describe as sort of a no product left behind approach, as we talk about what our full capabilities are. And so we've been able, through having a different level of conversation, frankly, having commercial people who are having that dialog, have a different level of awareness about how to bring to bear what we can deliver, whether it's technology or services or consulting, have been able to generate new business and some pretty interesting broad-based deals that include technology but also include other things within Revenue Cycle.

Operator

And we have Steve Halper from FBR Capital Markets on line with a question.

Steven P. Halper - FBR Capital Markets & Co., Research Division

As you contemplate the $75 million repurchase, does that come at the expense of debt paydown during the course of 2014? And so how do you think about that? Because you've consistently taken the free cash flow and continue to ratchet down the debt.

Charles O. Garner

Yes, sure, Steve. So we're really thinking about 3 categories of investment. We'll continue to pay down debt. We're at -- just inside the high end of our target leverage ratio. We're at 3.4x, and the range is 2.5 to 3.5x. So since we're in our range, we feel like there's an opportunity here to continue to pay down debt a bit going forward but also look at other uses of that cash, including repurchasing shares. And the management team and the board felt very comfortable about purchasing shares being a good use of some of that cash. And then furthermore, that's in addition to about close to $60 million of investments that we already make in the business, both to support, maintain and grow and innovate our products. And as John and Mike alluded to earlier, that also doesn't forsake the opportunity for the right opportunities, either through partnerships or through other investments, to invest in any other inorganic growth vehicle. So we think it's a good balanced approach. And in any given quarter or year, I'm sure it will vary a little bit. But we feel very good that we're already in our target leverage ratio, and it's the right thing, we believe, for us to do at this time.

Steven P. Halper - FBR Capital Markets & Co., Research Division

Right. So on the margin, there'll probably be a little less debt repurchase -- but you're doing the share repurchase?

Charles O. Garner

I think that's certainly the case. I mean, we anticipate by year-end, we'll probably be from 3.4x at the end of '13 to about 3x at the end of '14.

John A. Bardis

Steve, this is John. So just to give a full 360, I think I want to just openly say that I think Chuck, in particular, and the team have done a brilliant job over the last 3 years of paying down debt. I think we've been fully and largely ahead of schedule. I think if you sort of look at what the team has accomplished on the management of the balance sheet and free cash flow, we are ahead of where we thought we would be 3 years ago post the Broadlane transaction. But in addition to that, in particular, Chuck and I, and Mike as well, but Chuck and I, specifically, have been talking to our shareholder base and listening very carefully to them and saying, "Hey, look, our objective is to create shareholder value. What is the best way for us to do that?" And we've had several very large and very thoughtful shareholders say, "Well, we think you've done a good job in the paydown of debt. Given your unique cash flow characteristics, you ought to think about, and here's some help in thinking about that, some share repurchases." And to tell you the truth, it was thoughtful, it was, we believe, quite right and a very useful way for us to continue to try to drive shareholder value using some of the remarkable and unique financial strengths of our cash flow as a corporation. So there was a lot more that went into this thinking, but the starting point of it was, quite frankly, what I'd like to say is extraordinary management of our debt structure and our balance sheet by our CFO.

Steven P. Halper - FBR Capital Markets & Co., Research Division

All right. I appreciate that color. And just as a follow-up, the restructuring cost, you mentioned some severance, this and that. Can you just expand on that and what precipitated? How many people are we taking out? And what precipitated that?

John A. Bardis

Yes. Let me just take a shot at that because poor Mike and Chuck had to do all the work. But when we started looking at it and sort of along the same line, Steve, right, we've had a successful run in managing of our balance sheet and our P&L. And as we look forward, right, and we think about investments, we have to think about whether the ones we've historically made are proportionately correct. Are we invested in the right areas with the right people doing the right things? And I asked Mike and Chuck to lead an effort. And, of course, we talked about this at the board level as well, which is, "Look, how do we continuously revamp and understand whether or not we're getting the best value for our investment and our infrastructure, our people and our processes?" And the spinout on this was that it offered an opportunity for us to recreate how we do certain processes, and that allowed us to reduce some headcount, which just makes sense. So it was all part and parcel to the broader issue of how do we create shareholder value, how do we drive EPS, how do we use our resources, including quality management information, to do that.

Robert P. Borchert

I'll just make a quick point. I know we have several analysts still on line in the Q&A queue. We'll stay on the line and get to every question if you stay with us.

Operator

And we have Donald Hooker from KeyBanc on line with a question.

Donald Hooker - KeyBanc Capital Markets Inc., Research Division

Just wanted to think about the issue on -- the issue of GPO compliance. How you're thinking about it? You sort of indicated that would be positive in this coming calendar year. What can you guys do, if anything, to drive that higher? I think in prior quarters, you talked about making some investments internally in technologies and what-not to help drive that GPO compliance higher going forward.

John A. Bardis

That's a great question. And it is, in my view, the most important thing that we can do within the group purchasing business to drive: number one, value to our clients; and number two, impact to their and our bottom line in a positive way. So where we do that well, we have clients that have as high as 91%, 92% contract compliance across the broad bandwidth of their nonlabor spend. These are very disciplined environments, where literally every single purchase is controlled and matched against a contract and its terms and verified through the order processing system. And that comes through our National Procurement Center led under Keith Thurgood's group. Dave Klumpe runs the National Procurement Center for us. We have clients, like Tenet Healthcare, who I think is as disciplined and as effective as you can find out there in these processes. CHRISTUS Healthcare, Kaiser Permanente, these are extraordinarily disciplined processes. When Mike came aboard after we shelled him with about a million things that he had to do, we asked him to undertake the leadership of the strategic initiatives with some of what we think are our unique strengths. And Mike alluded to the National Procurement Center and some of the transaction work that we've done in building up that business. So some of this has to do with while hospitals and health systems want greater compliance, the leak points within their execution and transaction systems are pretty substantial. So Mike has been responsible for leading a plan for us expand this business because one, it's a good business, and two it produces superior results for our clients. Mike?

Michael Patrick Nolte

Yes. I mean, it's really 3 things and some of them are work that we've done historically where we, I think, we've just made some investments to augment our capability. Some of them are relatively new. It starts really with visibility, and John mentioned the National Procurement Center. Part of the issue in health care with spend is your average health care organization has significant gaps in just understanding where they spend their dollars. And so that digitization, looking at transaction and, in part, having accountability for 100% of where they spend their dollars is a big starting point for us. Second is using some existing tools that we already have deployed at customers to narrow the focus around highest potential conversions. A lot of where our customers get hung up is not in the simple stuff, it's not in just getting a better price on an item that they already use. It's in trying to move to a single vendor or fewer vendors, where they can chase a better dollar threshold for the items that they use within their health care organization. And so we spent a fair bit of time at the end of last year of putting together a very specific analytics tool that helps support our client management teams so that they can work with customers to be more precise about where to target those opportunities. And then the last piece is really an investment that we made in people. And we talked a little bit about the couple of million dollars in restructuring. One of the areas where we have refocused some effort and -- or actually put in new capability in place as a result of some of that change is around taking work that we've traditionally done in places like physician preference items through consulting engagements and reengineering some of that similar capability to help support our client management teams. Not so much on high dollar value physician preference items, but really on broader conversions to fewer SKUs, fewer products, fewer vendors within health care systems, driving at -- making sure we maintain great client relationships, but really targeting opportunities to drive admin fee growth in specific categories as well.

Donald Hooker - KeyBanc Capital Markets Inc., Research Division

Got you. And one quick, quick follow-up, I think John mentioned, alluded to purchase services and I think it's sort of extending the types of contracts you can provide through your GPO. This may be impossible to answer, but just curious if it's possible to quantify the potential for expanding the types of contracts you're offering to hospitals?

John A. Bardis

Yes. It's a good question. So, look, we view the global opportunity in U.S. hospitals to be meaningfully north of $100 billion. And so if you take our market share percentages, it would be our percentage of that. So we think this is a very meaningful fertile new field to plow. And so we're deeply engaged in this. And I think to make sure that we use our time more -- very efficiently here, you can look for us to talk more about this, going forward, but this is a big opportunity. It's somewhere around 40% of the existing group purchasing volume as we know it today on the global scale in the United States.

Operator

And we have Jeff Garro from William Blair on line with a question.

Jeffrey Garro - William Blair & Company L.L.C., Research Division

I just want to ask if you have any early results that you can share from the rebranding efforts, maybe you've done some survey work with your clients or if you could break down your bookings in any way from the last quarter to support the positive impact from the rebranding?

John A. Bardis

I think we would be taking a very wild guess at that, so the answer is no. But what I would tell you is it really gave us a rallying point to, first and foremost, train our people around the value proposition. That may have been the most important thing we can do because we found that we have meaningfully disparate understandings of our capabilities throughout the company. And as you can imagine, having either assembled or built individual point solutions of that individual's -- we're either responsible for making or selling, building or selling, you ended up having single product centricity in terms of their thinking. And that was problematic for us because our -- at times, we were quite uneven in how we communicated our value proposition. And that started with the lack of consistency amongst our own personnel. And so it really allowed us to consolidate the messaging, the training, but it's much deeper than that because Mike also built business process around literally every product, every service, every element of our operation that is consistent with how our brand is represented. So now we have product planning all the way from product managers to implementation that takes into account how the product fits into the brand and the overall solution set. So it's pretty deep, it was a pretty deep exercise.

Jeffrey Garro - William Blair & Company L.L.C., Research Division

Great. And then just to follow-up on the enhanced planning and the earlier mention about product that will combine some of the attributes of your service line analytics product and your contract management product, do you have any timetable for the broader release of that solution?

John A. Bardis

Well, we -- so today, our bundled payment tool is live and in the market and we have quite a few planes on the runway, if you will, in various stages of take off execution for the use of that product. The contract manager, web-based application, both Android and Apple, is live in a very large health system and being introduced to another, right now, that we believe will be using it. So we're in various stages of rollout of these capabilities but they are legitimate commercial integrated tools today. So this becomes just the normal part of the planning, execution and innovation process. And I would share with you, probably going forward, that you're going to see us invest meaningful cycles of Mike's leadership and mine and the planning team, is really around innovation because we have an extraordinary amount of data and extraordinary breadth of capabilities that we think have more than 1 or 2 connecting points related to similar to the ones that I mentioned earlier on contract management, SLA and episode of care.

Charles O. Garner

We will create a release capability this year, and to John's point, I think we've certainly will have ongoing work in infrastructure and supporting our platforms but the good news is that while we're going to maintain a relatively flat capital budget, we have the ability, as we move forward, to reorient more and more of those dollars into building innovative solutions for customers and to augmenting some of the capabilities that we've already described. And it's actually started to be kind of fun to see that transition and to see the opportunities that we have in front of us.

Operator

And we have Gavin Weiss with JPMorgan on line with a question.

Gavin Weiss - JP Morgan Chase & Co, Research Division

So John, you cited a number of renewals in your slides, in your comments, and it sounds like customers are expanding their business with MedAssets. Can you talk about what renewals you may have coming up in 2014 and maybe what types of expansions your customers are looking for?

John A. Bardis

Yes, so we don't comment on specific health systems. But I would tell you that the past 24 months has been much more weighted with big renewals than the next 12 will be. And I'm grateful for that. Rand Ballard has been an essential person in making sure that those were taken care of. So this is a time for us, more importantly, to -- because when you're in a contract renewal period, you are in a state of flux with a client because what we've done is we tend to freeze time and discuss what the historical contract parameters are and have been without moving forward on expanded capabilities, because you've got to have a time of measurement to know whether or not the contract is worth renewing and how you value it. So I would tell you, today, just the fact that we don't have meaningfully large renewals on our docket for this year, allows us to focus, Gavin, on offense, which I feel pretty good about. It also allows us, I guess, what I didn't really emphasize, I think before we brought Mike on board, there were so many different things that the integration of finance and operations needed to focus on and we were, to some degree, we -- to be fair, we reorganized the entire company. It was not unlike sort of rebuilding the airplane while we were flying it. We're past that point and it's really sort of empowering us to not only focus on execution and expansion relationship, what Mike mentioned a minute ago, the whole notion of investment and innovation.

Gavin Weiss - JP Morgan Chase & Co, Research Division

Okay. So I guess what you're saying is that now that you've lapped a number of these larger renewals, you expect that to benefit as you get into the actual execution of these new contracts?

John A. Bardis

That's correct. So for example, one of the very large ones that was mentioned, and virtually all of these, the relationship has not just been renewed but it's been expanded in scope. And some of that scope is very, very material. Now hopefully we'll have something good to say about that as we proceed.

Operator

And we have David Larsen from Leerink Swann on line with a question.

David Larsen - Leerink Swann LLC, Research Division

With the increase in the backlog -- with the increase in the RCM backlog, was that driven by these 6 clients that you sort of highlighted on Slide 4? The expansion of the contracts, the renewals and expansions, I'm assuming that's what drove the increase in the RCM backlog, just any more color on that. Like is it services or technology? And then, there were 2 large clients, service clients that caused some fluctuation earlier in the year, are those sort of fully rolled off so that's stabilized?

John A. Bardis

So let me turn it to Mike. Yes, so we've had a good close rate and very good backlog improvement, which in the Revenue Cycle Technology business does not, as you know, instantly translate into revenue. But it does give a forward outlook to the existence of it, so we feel strong. I mean, we feel good about the ultimate impact of that.

Michael Patrick Nolte

Yes, your question about revenue rolling off. Yes, the ultimate impact of the couple of customers that we talked about from last year is pretty much out of the backlog at this point.

David Larsen - Leerink Swann LLC, Research Division

Okay, great. And then, Mike, you mentioned investment in RCM -- that obviously had a little bit of an impact in the margin this quarter. Can you just sort of expand on what those investments were and how that positions you going forward?

Michael Patrick Nolte

Yes, I mean, it's the things we've talked about. I think maybe even since I began in March of 2012. It's really been around service delivery and capability as it relates to the operational part of the business. And then on the capital side, it's really infrastructure, it's everything from transitioning to a world-class data center to some things that we had to -- what we describe internally as technical debt, but work that we just had to make sure that we shored up to continue to make sure that we had a stable platform, that we served customers well, that we could scale and expand our business in a way to support growth. And it's kind of grunt work at the end of the day, a lot of it. And as I was alluding to earlier, it's been nice to see the beginnings of transition back and directing more of those dollars to innovation and differentiated software and less of them going to things that are more getting the basics right, I guess, if you want to think about it that way.

Operator

And we have Sean Dodge from Jefferies on line with a question.

Sean Dodge - Jefferies LLC, Research Division

John, going back to the comments you made on the coverage opportunities still available in the GPO, you guys have what appears to be pretty comprehensive coverage of the products or the consumable items. And then last year, I think it was Mike that mentioned only having scratched the surface when it comes to labor. So I'm curious, what is the opportunity for MedAssets there? And more specifically, how does the GPO model work when it comes to driving savings in something like labor?

John A. Bardis

Yes, I'm going to turn that specific question over to Mike. But we have, I believe, a very robust labor solution run by a really bright young manager that we have in the company today. And that business growth rate, to some degree, is directly tied to the amount of capital we put into it. So labor and labor management, labor for hospitals is approximately $400 billion to $500 billion of spend. And it's a big number. And particularly, when one lays in benefits and hospitals tend -- and health systems tend to have very rich labor benefits. And particularly in states where they're unionized. So Mike, you want to talk a little bit about what you're doing there?

Michael Patrick Nolte

Yes, there's some pieces of it that interestingly behaved almost exactly like the GPO. We manage relationships, for example, with agency organizations that support agency labor within health care systems. And the contracting, the way we get paid fees, a lot of that interaction looks a lot like a GPO agreement. It's a staffing arrangement as opposed to a product, obviously, so you have different characteristics and you have to manage it for reasons that are probably, obviously -- obvious pretty differently. But the essential fee model doesn't look a whole lot different from the GPO. There's a couple of areas around labor in addition to that and certainly, agency labor's a big deal but it's obviously a portion of labor cost in health care systems, not all of it. There's a couple of other areas where we see enormous growth opportunity as well. Some of it's around what looks a little bit more like advisory work and it's getting it into the meat of what the right economic solutions are around labor within health care systems. And that can include agency labor but it includes staffing models. And as you can imagine, it's also an increasingly big area of focus for health care organizations, because as they transition to value-based care, they're making different choices about where they staff, how they staff, the kinds of talent that they need and the mix of permanent versus temporary labor. Many of those business models are getting turned on their head as they think about how to operate differently. And the short summary is, they used to try to think about how to staff patients that they were putting into hospital, now they're trying to figure out how to staff to get them out of the hospital, which is a pretty different approach. And then underneath the covers, there's other great parts of our business that support labor management as well and that could be everything from our lean consulting efforts that support process and efficiency and certainly manage costs and staffing in different ways as a result of that -- those efforts where we have a better process that you need less capacity for. And, yes, there's some probably less interesting stuff around temporary staffing that we do as well to help support -- almost like a staff and gate [ph] and see ourself in some instances with mostly leadership positions where we're finding somebody to be a temporary chief nurse, for example.

Sean Dodge - Jefferies LLC, Research Division

Okay. That's very helpful. And am I right in characterizing that as it's still being a very large opportunity, still scratch the surface there? And then is this more of a near-term opportunity or something that's a little bit further out on the horizon like maybe next 3 or 4 years?

Michael Patrick Nolte

No, it's very near term, it's growing faster than just about anything we're doing. It's growing off of a relatively small base, right. It's not as big as the GPO, for example, but it's a big number just in terms of total cost spend obviously in health care system. It's approaching half of what most health care organizations spend. So again, we're not going to cover every dollar of labor spend within the health care system like you potentially could address within a supply chain, but from a growth perspective and opportunity perspective, it's enormous.

Operator

And we have Bret Jones from Oppenheimer on line with a question.

Bret D. Jones - Oppenheimer & Co. Inc., Research Division

I wanted to know in the 12-month contracting, we did we see a stepback this quarter in supply chain management. We saw the same thing last quarter. And you've kind of identified that it was associated with the timing of renewals. Can you quantify the impact to 12-month contracting just associated with the timing?

Rand A. Ballard

[indiscernible] Sir, I'm not sure I fully heard the entire question, you're breaking up a little bit.

Bret D. Jones - Oppenheimer & Co. Inc., Research Division

Sorry about that. So the question is, the 12-month contracting for supply chain management stepped back this quarter, same thing happened last quarter. Can you quantify the impact associated with just the timing of renewals?

Rand A. Ballard

Yes. So let me just pull out the prior quarters. We had a little bit of a bump if I look back over the full year in '13, you'll see a little bit of a spike. First quarter -- between first quarter and second quarter, we added about $4 million in contracted revenue and then jumped about $13 million between the second and third quarter and then came back down about $4 million -- $4 million, $5 million in the fourth quarter. So some of that just has to do with some timing of just some episodic items, timing of expectation and performance fees and renewals. And so I wouldn't draw maybe too much into it in terms of comparing year-over-year trends. Meaning, the variability by quarter, I think the general statement though in aggregate of looking at quarter year-over-year on the growth from that, is what we'd look at is pretty good indicator and is really what we're looking at for the indication of '14 growth over '13.

John A. Bardis

I was going to say, some of that was an unusually high jump in Q2, which creates a little bit of a difficult comp.

Bret D. Jones - Oppenheimer & Co. Inc., Research Division

And then I just wanted to get clarification on something that was talked about before in terms of admissions being down and related to the short-term stay and the reclassification of admissions versus observations. How should we think about that really impacting MedAssets? Because my understanding of that was more of just a classification, almost like an accounting gimmick, but the actual treatment that was received by the patient wasn't any different whether there were admitted versus observation.

John A. Bardis

It's a great question. So you've probably seen -- I mean, I'm going to take just a little bit of license here. There was quite a bit of press this last 1.5 years on observation versus inpatient, a couple of public companies got dinged on this. And what I don't know yet, Bret, we just don't know, is whether or not that particular recoding issue has been a result of regulatory scrutiny or a result of true clinical differentiation on the need. We don't know. But it's just the timing of 2 public companies being called out on this over the last couple of years. I have a sense may have influenced the conservation on this issue. We tie that to -- when you start looking at -- excuse me, additionally, the economic decisions that people are making and the transition that they are making on coverage and utilization, it's very hard to tell when the inpatient number starts to recover.

Operator

And we have Robert Willoughby from Bank of America on line with a question.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

John or Chuck, on the deal front, can you size any of the opportunities, potential opportunities, that are out there? Would this be something adding a new leg of disclosure here or line item of disclosure? Or are these just smaller bolt-on transactions likely to be within the current revenue line items?

John A. Bardis

We haven't completed them yet, so I don't know. I'm kidding. We're not looking at anything -- what you would call huge, right. These are things that sort of fit our strategy. We focused on staying the course around capital allocation and strategy. So I don't think anything that we do in the future here should be a big surprise.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Okay. Okay. And just a quick one for Chuck, is the share-based compensation tied to 2013 performance there? I see it's flat in your high-end and low-end GAAP guidance ranges there, I guess a cynic might want to see more of a range there if it's tied to the '14 performance.

Charles O. Garner

Yes. We'll be -- I'd have to take a closer look at it. Yes, let me take a closer look at it, I don't want to give you an incomplete answer.

Operator

And we have Garance Serafin [ph] from CTI Group -- Citigroup on line with a question.

Unknown Analyst

Two questions. First on guidance, so in the prepared remarks, it sounded like there's, in the marketplace, there's more uncertainty than ever in terms of the different purchasing models, reimbursement models and what have you, which creates an opportunity but it's also difficult to guide. So I'm wondering how much of that has made it into this year's guidance in the level of conservatism versus last year, if at all. And if so, what specific levers are you more conservative on this year?

John A. Bardis

You're fading out a little bit. I think maybe could you repeat it with -- I think we've...

Unknown Analyst

Sure. So, no, my question was regarding guidance. In your prepared remarks, you had mentioned just the level of uncertainty in the marketplace due to various reasons being as great as ever, which creates opportunity for MedAssets. However, I would think that it also makes it difficult to guide for the year. So my question was how much of that has made it into this year's guidance than last year in terms of the level of conservatism? And if so, what levers are you more conservative on relatively versus last year?

Charles O. Garner

Yes, So I think what we've tried to do is kind of range bound where there might be variability or volatility. Certainly -- a certain element of our business, largely our Revenue Cycle, both services and technology, really aren't directly impacted for the most part based on utilization, patient census and volume. It's primarily our Group Purchasing Organization business, whereby we get paid, what's known as administrative fee, as a percentage of some purchasing volume. So based on our outlook, based on our detailed client level build-ups that we do, we obviously forecast what we believe will be performance over the year and then we put some range around that. So I would say our methodology is very consistent previously. Obviously, we try to look at what's happening around broader utilization, census trends, settings of care, et cetera and factor that in. I wouldn't say we materially done anything differently. I think on the margin, what I would and is that plus-or-minus either tailwind or headwind we factored in but because of the timing of the impact, it would likely be a later in the year event for us, anyway. So if for some reason, utilization or volume tailed off meaningfully earlier in the year, that could have some impact or if we saw a meaningful boost. But I think at this point, our guidance right now is reflecting what we think is a realistic and achievable -- I wouldn't call it a conservative -- scenario per se. And I think as we go in a quarter or so into the year, a quarter or 2 in to the year, we'll know better what's going to happen around utilization and trends related to reform and how many folks get signed up for additional coverage...

Rand A. Ballard

It's part of, frankly, our estimation, really cover within the range of our guidance what we think are the realistic outcomes knowing the uncertainties we normally have in the business plus the variability related to health care reform.

Unknown Analyst

Got it. Okay, that's helpful. And then the second question is regarding ICD-10. For your clients, it's obviously a pretty big deal. And in your prepared remarks, you said I think it was strained optimism. So I'm just wondering, in the last quarter, has it been a net positive or a net negative? And what are your assumptions around 2014 as it relates to the October timeline? I mean, how much of it is restrained versus in the numbers, I guess. If you could just add some more color to that.

John A. Bardis

Yes, I mean, it's hard to distinguish between inputs in terms of why bookings performance, to looks like it does, but right now bookings performance is fantastic in that part of the business. The concern is really about patterns of buying behavior on the downside which is, as we get closer to October, assuming the day holds, and I never thought I'd hear of -- there's actually starting to be some additional conversations about whether or not October will actually be a single date or multiple dates, but assuming the day holds, what the buying behavior looks like is a bit of an open question. So far, we haven't seen anything to suggest that there's any restraint in what purchasing behavior looks like. If anything, it looks really solid. The strong belief though is through and beyond the ICD-10 transition that the kinds of solutions that we provide, both on the technology and the service side are crucial to helping our providers navigate in an ICD-10 world. In part, because we expect there will be cash flow impacts for a reasonable period of time. It's not relatively permanently due to the nature of the shift into the new coding environment and if you follow the plot on other countries that have gone through an ICD-10 transition, for example, the level of efficiency that they've seen as they think about coding and compliance. So it's a little bit uncertain probably for the few months towards the end of the year as we get closer to October but our belief is long term and certainly beyond 2014, it's a tailwind for us.

Operator

And we have no further questions.

John A. Bardis

Well, thank you, everyone. We appreciate your patience and we appreciate your support and your interest. And we'll look forward to communicating next quarter, if not before, so thank you very much.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. And you may now disconnect.

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